Fed Survey: Half of U.S. banks tightening lending

FARMERS BRANCH, Texas (6/2/08)--A Federal Reserve survey of senior loan officers released May 5 indicates that roughly 50% of banks nationwide are tightening their lending standards on commercial and industrial loans. This could result in opportunities for smaller lenders such as credit unions.

The percentage is up from the 30% of banks that reported tightening in January (LoneStar Leaguer May 28).

About 65% of banks--up from about 40% in the January Fed survey--indicated that they had increased spreads of commercial and industrial loan rates over their cost of funds for these items. Large banks were more likely to tighten, according to the survey.

The pullback by the large banks could create opportunities for smaller and nontraditional lenders. However, some entrepreneurs are feeling uncertain about other types of funding sources, such as venture capital.

More businesses--in excess of 5,000 firms--filed for bankruptcy in April 2008 than in any month since the new bankruptcy laws took effect in 2005, the survey indicated. The increase in filings shows that trouble in the subprime housing market and other financial instruments on Wall Street have affected small businesses.

A combination of tighter credit, higher commodity prices, and stagnant sales probably account for the rise in bankruptcies, with builders and other businesses tied to the housing market accounting for many filings, the survey said.

courtesy of cuna.org